Learn everything about structured settlements and annuity payments — how they work, their benefits, tax advantages, and how to sell them for cash in 2025.
Introduction
When you receive a large payout from a lawsuit, insurance claim, or personal injury case, one of the most secure ways to receive that money is through a structured settlement. Instead of getting a single lump sum, you receive scheduled payments over time, often funded through an annuity. This system provides long-term financial security, tax advantages, and peace of mind. But how do structured settlements and annuity payments actually work? And when should you consider selling them for cash? This complete guide explains everything you need to know in 2025.
What Is a Structured Settlement?
A structured settlement is a financial arrangement where you receive compensation through regular payments rather than one large payout. These payments usually come from an insurance company that buys an annuity — a financial product designed to pay you steadily over time.
Structured settlements are common in:
- Personal injury or medical malpractice cases
- Wrongful death lawsuits
- Workers’ compensation claims
- Product liability cases
Example
Imagine you win a $1 million lawsuit settlement. Instead of getting all the money at once, you might receive $50,000 per year for 20 years. This helps ensure long-term financial stability and prevents the money from being spent too quickly.
How Do Structured Settlement Annuities Work?
Structured settlements are usually funded through an annuity purchased by the defendant’s insurance company. The annuity guarantees periodic payments according to your settlement agreement. These payments can be customized — for example, monthly, annually, or even with a large initial payment followed by smaller ones.
Common Payment Structures
- Level payments: Equal amounts over time.
- Increasing payments: Start small and increase yearly to offset inflation.
- Deferred payments: Begin at a later date, often for retirement or education.
- Lump-sum add-ons: Periodic larger payments for special needs like home purchase or medical bills.
Structured settlements are guaranteed by top-rated insurance companies, making them one of the most secure long-term payment options available.
Key Benefits of Structured Settlements
1. Guaranteed Income
Structured settlements provide consistent, reliable income — ideal for people who need financial stability after injury or loss. You’ll never have to worry about managing or investing a large lump sum.
2. Tax-Free Payments
In most cases, the payments you receive from a structured settlement are tax-free under U.S. law. This means you don’t pay income tax on the money, making it more valuable than taxable investment returns.
3. Protection from Overspending
Receiving a lump sum often leads to quick spending or poor financial decisions. Structured payments eliminate that risk by spreading your money over years or even decades.
4. Customization
You can design your payment schedule around your personal goals — college tuition, retirement, medical care, or monthly living expenses.
5. Financial Security
Since payments are backed by established insurance companies, they’re safe and predictable. This is crucial for individuals unable to work due to injuries.
Drawbacks of Structured Settlements
While structured settlements are secure, they’re not perfect.
Here are the main downsides:
- Lack of Flexibility: Once set, payment terms are difficult to change.
- Inflation Risk: Fixed payments lose purchasing power over time.
- Limited Access to Cash: You can’t withdraw large sums unless you sell part of the settlement.
- Low Growth Potential: Unlike investments, structured settlements don’t increase significantly in value.
What Are Annuity Payments?
An annuity is the financial product that funds structured settlements. It’s a contract between you and an insurance company where you receive regular payments in exchange for a lump-sum deposit.
In structured settlements, the insurer buys the annuity on your behalf to ensure payments continue as promised. Annuities can also be purchased privately for retirement income or investment purposes.
Types of Annuities in Structured Settlements
- Fixed Annuities: Provide guaranteed payments with stable interest rates.
- Indexed Annuities: Payments increase based on market indexes like the S&P 500.
- Lifetime Annuities: Continue for your entire life, ensuring lifelong income.
- Deferred Annuities: Begin payments at a future date, often used for retirement.
Each annuity type offers different benefits depending on your needs and risk tolerance.
Tax Benefits of Structured Settlements
One of the biggest advantages of structured settlements is their tax-free status under U.S. law (Internal Revenue Code Section 104(a)(2)).
This means:
- Payments for physical injury or wrongful death are exempt from federal and state taxes.
- Interest earned within the annuity is also tax-free.
- If you sell your settlement later, that transaction might be taxable, depending on how it’s structured.
For people recovering from major injuries, this tax benefit can save tens of thousands of dollars over time.
When Should You Sell Your Structured Settlement?
Sometimes, life changes and you might need immediate cash instead of waiting for long-term payments. In that case, you can sell all or part of your structured settlement to a factoring company in exchange for a lump sum.
Reasons to Sell
- Pay off high-interest debt
- Cover medical emergencies
- Buy a home or start a business
- Fund education or relocation
However, selling your settlement should be a last resort, as you’ll receive less than the total payout value due to discounting and fees.
Partial vs. Full Sale
- Partial Sale: You sell only certain payments and keep the rest.
- Full Sale: You sell the entire future payment stream for one lump sum.
Always consult a financial advisor or attorney before selling your settlement to ensure you get a fair deal.
How to Sell a Structured Settlement Safely
If you decide to sell, follow these steps for a safe and legal process:
- Research Reputable Companies – Look for licensed buyers with strong reviews.
- Request Multiple Quotes – Compare offers from different buyers.
- Understand the Discount Rate – This determines how much cash you’ll get now.
- Hire a Lawyer – Court approval is required by law for all structured settlement sales.
- Get Court Approval – A judge must confirm that selling your payments is in your best interest.
Pro Tip: Avoid companies that pressure you into selling or hide fees. Transparency is key.
Top Structured Settlement Companies in 2025
| Company | Best For | Notable Feature |
|---|---|---|
| J.G. Wentworth | Fast Cash Payouts | Offers flexible partial sales |
| Peachtree Financial | Customer Support | Personalized payment plans |
| Fairfield Funding | Competitive Offers | Low discount rates |
| Olive Branch Funding | Transparent Process | Quick approvals |
| DRB Capital | High Payout Options | Good for large settlements |
These companies are among the most trusted in the U.S. for buying structured settlements fairly and legally.
Legal Protections for Settlement Holders
Structured settlements are regulated under state and federal laws, ensuring fairness and protection for recipients.
Key regulations include:
- Structured Settlement Protection Acts (SSPAs) in most states.
- Mandatory Court Approval for any sale or transfer.
- Consumer Disclosure Requirements before finalizing the sale.
These safeguards help prevent exploitation and ensure that sellers fully understand their financial choices.
FAQs About Structured Settlements and Annuities
Q1: Are structured settlement payments guaranteed?
Yes. They’re backed by major insurance companies, ensuring reliability.
Q2: Can I cash out my structured settlement anytime?
You can sell it, but only with court approval and usually at a discount.
Q3: Are all structured settlements tax-free?
Most are, especially those related to physical injury or wrongful death cases.
Q4: Can I choose how I get paid?
Yes. You can customize payment frequency, duration, and start date during setup.
Q5: Is an annuity the same as a structured settlement?
Not exactly. An annuity funds the structured settlement — it’s the financial mechanism behind the payments.
Conclusion
Structured settlements and annuity payments offer a smart, secure way to manage large sums of money over time. They provide financial stability, tax-free income, and long-term peace of mind, especially after a lawsuit or injury. While the system limits flexibility, the benefits far outweigh the downsides for most people. If you ever need a lump sum, you can sell part of your settlement — but always do so carefully and with expert advice.
In 2025, structured settlements remain one of the safest and most dependable financial tools for long-term income planning.